[Federal Register: June 13, 2005 (Volume 70, Number 112)]
[Proposed Rules]
[Page 34080-34081]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13jn05-9]
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DEPARTMENT OF DEFENSE
GENERAL SERVICES ADMINISTRATION
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
48 CFR Part 31
[FAR Case 2004-014]
RIN: 9000-AK19
Federal Acquisition Regulation; Buy-Back of Assets
AGENCIES: Department of Defense (DoD), General Services Administration
(GSA), and National Aeronautics and Space Administration (NASA).
ACTION: Proposed rule.
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SUMMARY: The Civilian Agency Acquisition Council and the Defense
Acquisition Regulations Council (Councils) are proposing to amend the
Federal Acquisition Regulation (FAR) by revising the contract cost
principle regarding depreciation. The proposed rule adds language which
addresses the allowability of depreciation costs of reacquired assets
involved in a sales and leaseback arrangement.
DATES: Interested parties should submit comments in writing on or
before August 12, 2005, to be considered in the formulation of a final
rule.
ADDRESSES: Submit comments identified by FAR case 2004-014 by any of
the following methods:
Federal eRulemaking Portal: http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&log=linklog&to=http://www.regulations.gov. Follow the
instructions for submitting comments.
Agency Web Site: http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&log=linklog&to=http://www.acqnet.gov/far/ProposedRules/proposed.htm.
Click on the FAR case number to submit comments. E-mail: farcase.2004-014@gsa.gov. Include FAR case 2004-014 in the
subject line of the message.
Fax: 202-501-4067.
Mail: General Services Administration, Regulatory Secretariat
(VIR), 1800 F Street, NW, Room 4035, ATTN: Laurieann Duarte,
Washington, DC 20405.
Instructions: Please submit comments only and cite FAR case 2004-
014 in all correspondence related to this case. All comments received
will be posted without change to http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&log=linklog&to=http://www.acqnet.gov/far/ProposedRules/proposed.htm
, including any personal information
provided.
FOR FURTHER INFORMATION CONTACT: The FAR Secretariat at (202) 501-4755
for information pertaining to status or publication schedules. For
clarification of content, contact Mr. Jeremy Olson, at (202) 501-3221.
Please cite FAR case 2004-014.
SUPPLEMENTARY INFORMATION:
A. Background
In response to public comments related to FAR 31.205-16 (submitted
under FAR Case 2002-008), the Councils revised the proposed rule to
state that the disposition date is the date of the sale and leaseback
arrangement, rather than at the end of the lease term. During the
deliberations on this case, the Defense Contract Audit Agency brought
to the Councils' attention a concern regarding the cost treatment when
a contractor ``buys back'' an asset after a sale and leaseback
transaction is recognized under the revised proposed rule. The Councils
recognized this concern, not just for sale and leaseback arrangements,
but also for assets that are purchased, depreciated, sold, and
repurchased. As such, the issue involves a myriad of situations where a
contractor depreciates an asset or charges cost of ownership in lieu of
lease costs, disposes of that asset, and then reacquires the asset. The
Councils recognized this issue required research and deliberation and
established a new case (FAR Case 2004-014) to address this buy-back
issue.
The Councils recognize that there are situations when a contractor
can and will reacquire an asset after relinquishing title, in either a
sale and leaseback arrangement or simply a typical sale and subsequent
repurchase. It appears that the only area that currently requires
coverage is in the case of a sale and leaseback arrangement. The
coverage related to a sale and leaseback arrangement is needed as a
result of the changes made under FAR Case 2004-005, Gains and Losses
(see Federal Register 70 FR 33673, dated June 8, 2005).
Currently, no situations in which the Government was at risk in the
areas of typical sale and reacquisition, or capital leases were
identified. FAR 31.205-11(f) and 31.205-36(b)(3) currently provide
coverage for typical sale and reacquisition transactions at less than
arm's-length. In addition, FAR 31.205-11(i) requires contractors to
treat leases meeting the definition of a capital lease in FAS-13 as an
asset owned by the contractor. The subsequent acquisition
[[Page 34081]]
of title to the asset is not a disposition and therefore no gain or
loss need to be considered. In addition, the GAAP treatment of the
acquisition of an asset under a capital lease, which in effect steps-up
the value of the asset, would result in an unallowable cost, based on
the intent of the FAR as shown in FAR 31.205-52, Asset valuations
resulting from business combinations.
The Councils recommend revising FAR 31.205-11, Depreciation, to
include specific language regarding the treatment of assets reacquired
after entering into a sale and leaseback arrangement. The Councils
believe this will eliminate potential disagreements regarding the
allowable depreciation expense of assets involved in a sale and
leaseback arrangement.
The Councils believe that, for Government contract costing
purposes, a contractor should not benefit or be penalized for entering
into a sale and leaseback arrangement. The Government should reimburse
the contractor the same amount for the subject asset as if the
contractor had retained title throughout the service life of the asset.
Therefore, the Councils recommend that the determination of allowable
depreciation expense of the reacquired asset consider--
Any gain or loss recognized in accordance with FAR 31.205-
16(b);
Any depreciation expense included in the calculation of
the normal cost of ownership for the limitations at FAR 31.205-11(h)(1)
and 31.205-36(b)(2); and
The depreciation expense taken prior to the sale and
leaseback arrangement.
This is not a significant regulatory action and, therefore, was not
subject to review under Section 6(b) of Executive Order 12866,
Regulatory Planning and Review, dated September 30, 1993. This rule is
not a major rule under 5 U.S.C. 804.
B. Regulatory Flexibility Act
The Councils do not expect this proposed rule to have a significant
economic impact on a substantial number of small entities within the
meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq.,
because most contracts awarded to small entities use simplified
acquisition procedures or are awarded on a competitive, fixed-price
basis, and do not require application of the cost principles and
procedures discussed in this rule. For fiscal year 2003, only 2.4
percent of all contract actions were cost contracts awarded to small
business. An Initial Regulatory Flexibility Analysis has, therefore,
not been performed. We invite comments from small businesses and other
interested parties. The Councils will consider comments from small
entities concerning the affected FAR Part 31 in accordance with 5
U.S.C. 610. Interested parties must submit such comments separately and
should cite 5 U.S.C. 601, et seq. (FAR case 2004-014), in
correspondence.
C. Paperwork Reduction Act
The Paperwork Reduction Act does not apply because the proposed
changes to the FAR do not impose information collection requirements
that require the approval of the Office of Management and Budget under
44 U.S.C. 3501, et seq.
List of Subjects in 48 CFR Part 31
Government procurement.
Dated: June 8, 2005.
Julia B. Wise,
Director, Contract Policy Division.
Therefore, DoD, GSA, and NASA propose amending 48 CFR part 31 as
set forth below:
PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES
1. The authority citation for 48 CFR part 31 is revised to read as
follows:
Authority: 40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 42
U.S.C. 2473(c).
2. Amend section 31.205-11 by--
a. Revising paragraph (g);
b. Removing paragraph (h); and
c. Redesignating paragraph (i) as (h).
The revised text reads as follows:
31.205-11 Depreciation.
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(g) Whether or not the contract is otherwise subject to CAS, the
following apply:
(1) The requirements of 31.205-52 shall be observed.
(2) In the event of a write-down from carrying value to fair value
as a result of impairments caused by events or changes in
circumstances, allowable depreciation of the impaired assets is limited
to the amounts that would have been allowed had the assets not been
written down (see 31.205-16(g)). However, this does not preclude a
change in depreciation resulting from other causes such as permissible
changes in estimates of service life, consumption of services, or
residual value.
(3)(i) In the event the contractor reacquires property involved in
a sale and leaseback arrangement, allowable depreciation of reacquired
property shall be based on the net book value of the asset as of the
date the contractor originally became a lessee of the property in the
sale and leaseback arrangement--
(A) Adjusted for any allowable gain or loss determined in
accordance with 31.205-16(b); and
(B) Less any amount of depreciation expense included in the
calculation of the amount that would have been allowed had the
contractor retained title under 31.205-11(h)(1) and 31.205-36(b)(2).
(ii) As used in this paragraph (g)(3), ``reacquired property'' is
property that generated either any depreciation expense or any cost of
money considered in the calculation of the limitations under 31.205-
11(h)(1) and 31.205-36(b)(2) during the most recent accounting period
prior to the date of reacquisition.
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[FR Doc. 05-11643 Filed 6-10-05; 8:45 am]